FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number: 0-27562
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ATLANTIC REALTY TRUST
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(Exact name of registrant as specified in its charter)
Maryland 13-3849655
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
747 Third Avenue, New York, New York 10017
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(Address of principal executive offices)
(Zip Code)
(212) 702-8561
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
The number of shares of beneficial interest, par value $.01 per share,
outstanding on November 2, 1999 was 3,561,553.
<PAGE>
I N D E X
This Quarterly Report on Form 10-Q contains historical information and
forward-looking statements. Statements looking forward in time are included in
this Form 10-Q pursuant to the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995. They involve known and unknown risks
and uncertainties that may cause the Trust's actual results in future periods to
be materially different from any future performance suggested herein. In the
context of forward-looking information provided in this Form 10-Q and in other
reports, please refer to the discussion of risk factors detailed in, as well as
the other information contained in, the Trust's Form 10 filed with the
Securities and Exchange Commission on March 28, 1996 as well as the Trust's
filings with the Securities and Exchange Commission during the past 12 months.
Part I -- FINANCIAL INFORMATION PAGE NO.
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Item 1. Financial Statements.
Consolidated Statements of Net Assets in Liquidation --
September 30, 1999 and December 31, 1998..... ........................1
Consolidated Statements of Changes in Net Assets in Liquidation --
Periods July 1, 1999 through September 30, 1999 and January
1,1999 through September 30, 1999 and Periods July 1, 1998
through September 30, 1998 and January 1, 1998 through
September 30, 1998....................................................2
Notes to Consolidated Financial Statements............................3
Item 2. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities............................................6
Item 3. Quantitative and Qualitative Disclosure About Market Risk.............6
Part II -- OTHER INFORMATION
Item 1. Legal Proceedings.....................................................7
Item 2. Changes in Securities and Use of Proceeds.............................7
Item 3. Defaults Upon Senior Securities.......................................7
Item 4. Submission of Matters to a Vote of Security Holders...................7
Item 5. Other Information.....................................................7
Item 6. Exhibits and Reports on Form 8-K......................................7
Signatures.....................................................................8
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
September 30, 1999 December 31, 1998
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ASSETS
Investments in Real Estate................ $ 37,775,000 $ 38,625,000
Cash and Short Term Investments........... 24,236,816 21,751,057
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Total Assets......................... $ 62,011,816 $ 60,376,057
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LIABILITIES
Estimated Costs of Liquidation............ $ 4,802,918 $ 4,164,168
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Total Liabilities......................... $ 4,802,918 $ 4,164,168
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Net Assets in Liquidation............ $ 57,208,898 $ 56,211,889
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Liquidation Basis of Accounting)
For the Period For the Period
July 1, 1999 to January 1, 1999 to
September 30, 1999 September 30, 1999
------------------ ------------------
Net Assets in Liquidation
Beginning of Period.................... $56,572,842 $56,211,889
Adjustments to Reflect
Liquidation Basis of Accounting........ 636,056 997,009
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Net Assets in Liquidation End of Period... $57,208,898 $57,208,898
=========== ===========
For the Period For the Period
July 1, 1998 to January 1, 1998 to
September 30, 1998 September 30, 1998
------------------ ------------------
Net Assets in Liquidation
Beginning of Period.................... $54,532,731 $54,048,704
Adjustments to Reflect
Liquidation Basis of Accounting........ 915,631 1,399,658
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Net Assets in Liquidation End of Period... $55,448,362 $55,448,362
=========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Significant Accounting Policies:
Atlantic Realty Trust, a Maryland real estate investment trust (the
"Trust"), was formed on July 27, 1995 for the purpose of liquidating its
interests in real properties, a mortgage loan portfolio and certain other assets
and liabilities which were transferred to the Trust from Ramco-Gershenson
Properties Trust (formerly named RPS Realty Trust) ("RPS") on May 10, 1996 (the
"Spin-Off Transaction"). The Trust had no operations from the date of formation
to the date of the Spin-Off Transaction. The Trust adopted the liquidation basis
of accounting as of the date of the Spin-Off Transaction based on its intention
to liquidate its assets or merge or combine operations with another real estate
entity within eighteen months from the date of the Spin-Off Transaction.
Liquidation Basis of Accounting
As a result of the Spin-Off Transaction, the Trust has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation appears imminent and the Trust is no longer viewed
as a going concern. Under this method of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at the anticipated
settlement amounts.
The valuations presented in the accompanying Statements of Net Assets
in Liquidation represent the estimates at the dates shown, based on current
facts and circumstances, of the estimated net realizable value of assets and
estimated costs of liquidating the Trust. In determining the net realizable
values of the assets, the Trust considered each asset's ability to generate
future cash flows, offers to purchase received from third parties, if any, and
other general market information. Such information was considered in conjunction
with operating the Trust's plan for disposition of assets. The estimated costs
of liquidation represent the estimated costs of operating the Trust through its
anticipated termination. These costs primarily include payroll, consulting and
related costs, rent, shareholder relations, legal and auditing. Computations of
net realizable value necessitate the use of certain assumptions and estimates.
Future events, including economic conditions that relate to real estate markets
in general, may differ from those assumed or estimated at the time such
computations are made. Because of inherent uncertainty of valuation when an
entity is in liquidation, the amounts ultimately realized from assets disposed
and costs incurred to settle liabilities may materially differ from amounts
presented.
Pursuant to the terms of the Trust's Amended and Restated Declaration
of Trust, the Trust was to continue for a period of 18 months from the date of
the Spin-Off Transaction, subject to, among certain other things, satisfactory
resolution of the RPS Tax Issues (as such term is defined in footnote 5 below).
Because the RPS Tax Issues have not yet been satisfactorily resolved, the Trust
has continued its business past that date. The Trust cannot currently estimate
the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
Consolidation
The consolidated financial statements include the accounts of the Trust
and its subsidiary. All significant intercompany accounts and transactions have
been eliminated in consolidation.
2. Investments in Real Estate:
Estimated Net
Property Location Realizable Value 9/30/99(a)
- -------- -------- ---------------------------
Hylan Shopping Center Staten Island, NY $37,775,000
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(a) Includes estimated cash flows using a disposition period of 9 months.
Realized values may differ depending on actual disposition results and
time period.
3
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
3. Shares Outstanding:
The weighted average number of shares of beneficial interest
outstanding for the period ending September 30, 1999 was 3,561,553.
4. Short-Term Investments:
Short-term investments at September 30, 1999 consist primarily of a
Certificate of Deposit at a major New York bank of $23,000,000 bearing interest
at a fixed rate of 4.15%.
5. Tax Contingency:
During the third quarter of 1994, RPS held more than 25% of the value
of its gross assets in overnight Treasury Bill reverse repurchase transactions
which the Internal Revenue Service ("IRS") may view as non-qualifying assets for
the purposes of satisfying an asset qualification test applicable to real estate
investment trusts (each, a "REIT"), based on a Revenue Ruling published in 1977
(the "Asset Issue"). RPS requested that the IRS enter into a closing agreement
with RPS that the Asset Issue would not impact RPS' status as a REIT. The IRS
declined such request. In February 1995, the IRS initiated an examination of the
1991-1995 income tax returns of RPS (the "RPS Audit" and, together with the
Asset Issue, the "RPS Tax Issues"). Based on developments in the law which
occurred since 1977, RPS' tax counsel, Battle Fowler LLP, rendered an opinion
that RPS' investment in Treasury Bill repurchase obligations would not adversely
affect its REIT status. However, such opinion is not binding upon the IRS.
In connection with the Spin-Off Transaction, the Trust assumed all tax
liability arising out of the RPS Tax Issues (other than liability that relates
to events occurring or actions taken by RPS following the date of the Spin-Off
Transaction) pursuant to a tax agreement, dated May 10, 1996, by and between RPS
and the Trust. Such agreement provides that RPS (now named Ramco-Gershenson
Properties Trust) under the direction of four trustees, three of whom are also
trustees of the Trust (the "Continuing Trustees"), and not the Trust, will
control, conduct and effect the settlement of any tax claims against RPS
relating to the RPS Tax Issues. Accordingly, the Trust does not have any control
as to the timing of the resolution or disposition of any such claims and no
assurance can be given that the resolution or disposition of any such claims
will be on terms or conditions as favorable to the Trust as if they were
resolved or disposed of by the Trust. During the third quarter of 1999, the
number of Continuing Trustees decreased from four to three upon Herbert
Liechtung's resignation as a trustee of both RPS and the Trust. Subsequent to
Mr. Liechtung's resignation, Robert A. Meister was named as a Continuing Trustee
to fill the vacancy on the board of trustees of RPS caused by Mr. Liechtung's
resignation.
RPS and the Trust have also received an opinion from Wolf, Block,
Schorr and Solis-Cohen LLP (the "Special Tax Counsel") that, to the extent there
is a deficiency in RPS distributions arising out of the IRS examination, and
provided RPS timely makes a deficiency dividend (i.e. declares and pays a
distribution which is permitted to relate back to the year for which each
deficiency was determined to satisfy the requirement that a REIT distribute
ninety five percent (95%) of its taxable income), the classification of RPS as a
REIT for the taxable years under examination would not be affected.
As of September 30, 1999, the Trust has not been required to perform
its indemnity obligation with respect to the RPS Tax Issues other than with
respect to legal fees and expenses paid in connection with the IRS' ongoing
examination. On March 1, 1999, the IRS revenue agent conducting the examination
issued his examination report (the "Revenue Agent's Report") with respect to the
tax issues in the RPS Tax Audit, including the RPS Tax Issues. The Revenue
Agent's Report sets forth a number of positions which the IRS examining agent
has taken with respect to the RPS Tax Issues for the years that are subject to
the RPS Audit, which Special Tax Counsel to the Continuing
4
<PAGE>
ATLANTIC REALTY TRUST AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (Continued)
Trustees believes are not consistent with applicable law and regulations of the
IRS. One of the positions, the acquisition of assets by RPS that could be viewed
as nonqualifying assets for REIT purposes, has been addressed in the opinion
letter of counsel referred to above. In addition, the IRS revenue agent has
proposed to disallow the deductions for bad debts and certain other items
claimed by RPS in the years under examination. In reaching his conclusion with
respect to the deduction for bad debts, the IRS revenue agent has disregarded
the fact that the values actually obtained for assets corresponded to the values
used by RPS in determining its bad debt deductions. If all of the positions
taken in the Revenue Agent's Report were to be sustained, RPS, with funds
supplied by the Trust, would have to distribute up to approximately $16.5
million to its shareholders, in accordance with the procedures for deficiency
dividends, in order to preserve its status as a REIT and could, in addition, be
subject to taxes, interest and penalties up to approximately $26 million through
September 15, 1999. The issuance of the Revenue Agent's Report constitutes only
the first step in the IRS administrative process for determining whether there
is any deficiency in RPS' tax liability for the years at issue and any adverse
determination by the IRS revenue agent is subject to administrative appeal with
the IRS and, thereafter, to judicial review. As noted above, the Revenue Agent's
Report sets forth a number of positions which Special Tax Counsel to RPS and the
Trust believe are not consistent with applicable law and regulations of the IRS.
The Trust has been informed that RPS has filed an administrative appeal
challenging the findings contained in the Revenue Agent's Report.
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Liquidation Activities.
Capital Resources and Liquidity
At September 30, 1999, the Trust owned one retail property (Hylan Plaza
Shopping Center, located in Staten Island, New York) as well as cash and certain
other assets, which include furniture, fixtures and equipment. The Trust does
not intend to make new loans or actively engage in either the mortgage lending
or the property acquisition business.
The Trust's primary objective has been to liquidate its assets in an
eighteen-month period from the date of the Spin-Off Transaction while realizing
the maximum values for such assets; however because the RPS Tax Issues have not
been satisfactorily resolved, the Trust has continued its business beyond such
period. Although the Trust considers its assumptions and estimates as to the
values and timing of such liquidations to be reasonable, the period of time to
liquidate the assets and distribute the proceeds of such assets is subject to
significant business, economic and competitive uncertainties and contingencies,
many of which are beyond the Trust's control. There can be no assurance that the
net values ultimately realized and costs actually incurred for such assets will
not materially differ from the Trust's estimates.
The Trust believes that cash and cash equivalents on hand, proceeds
generated by the remaining property and the proceeds from the eventual sale of
such property will be sufficient to support the Trust and meet its obligations.
As of September 30, 1999, the Trust had approximately $23,591,000 in cash and
short-term investments.
Item 3. Quantitative and Qualitative Disclosure About Market Risk.
Not applicable.
6
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
Item 5. Other Information.
Pursuant to the terms of the Trust's Amended and Restated Declaration
of Trust, the Trust was to continue for a period of 18 months from the date of
the Spin-Off Transaction (which 18-month period ended on November 10, 1997),
subject to, among certain other things, satisfactory resolution of the RPS Tax
Issues. Because the RPS Tax Issues have not yet been satisfactorily resolved,
the Trust has continued its business past that date. The Trust cannot currently
estimate the timing of the future satisfactory resolution of the RPS Tax Issues.
Accordingly, the Trust will continue until there is a final determination of
these issues.
Item 6. Exhibits and Reports on Form 8-K.
1. Exhibits: The registrant has filed the following exhibit as a part of
this Quarterly Report on Form 10-Q:
Exhibit Number Description
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27.1 Financial Data Schedule
2. The registrant has not filed any reports on Form 8-K for the three
month period ended September 30, 1999.
7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ATLANTIC REALTY TRUST
(Registrant)
Date: November 4, 1999 /s/ Joel M. Pashcow
------------------------------
Name: Joel M. Pashcow
Title: Chairman and President
(Principal Executive Officer)
Date: November 4, 1999 /s/ Edwin R. Frankel
------------------------------
Name: Edwin R. Frankel
Title: Executive Vice President, Chief
Financial Officer and Secretary
(Principal Financial and Accounting
Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Atlantic Realty Trust Condensed Consolidated Balance Sheets and
Statements of Income and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0000948975
<NAME> ATLANTIC REALTY TRUST
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 24,236,816
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 37,775,000
<DEPRECIATION> 0
<TOTAL-ASSETS> 62,011,816
<CURRENT-LIABILITIES> 4,802,918
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 57,208,898
<TOTAL-LIABILITY-AND-EQUITY> 62,011,816
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<INCOME-CONTINUING> 0
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-BASIC> 0
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</TABLE>
